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Poorly managed state-run firms must learn lessons from KT’s restructuring

Poorly managed state-run firms must learn lessons from KT’s restructuring

Posted April. 10, 2014 01:09,   


KT’s union and management agreed to reduce 6,000 people whose length of employment exceeds 15 years or longer in the form of a special voluntary retirement program. The union also agreed to remove subsidies for college tuition of employees’ children. These are self-rescue measures that KT`s union and management have devised by sharing sense of crisis that they will end up demising together if the situation continues. The company posted its first ever operating deficit amounting to 149.4 billion won (144 million U.S. dollars) in the fourth quarter of last year.

KT Chairman Hwang Chang-gyu, who was inaugurated three months ago, started the restructuring drive, judging that unless the company reduces its overblown workforce of 31,592 employees and improve labor productivity, it would hardly be able to survive. While losing competitiveness in its flagship business of wired and wireless telecom service, former KT Chairman Lee Seok-chae increased its affiliates from 30 to 56 in 2009 through merger & acquisition (M&A) deals. However, these affiliates failed to generate synergistic effect. The company has seen its income in the fixed-line telephony service decline 400 billion won (385 million dollars) every year, but its manpower in this business remains at 20,000. The total number of executives and staff at KT exceeds seven times that of a rival.

The global telecom industry is embracing a campaign to slash manpower. Technology has so advanced that tasks used to require 10 people can now be done by two or three people, and the focus of telecommunications business is moving from fixed line to wireless telecom, while devices are fast shifting from PCs to tablet PCs, pads, and smartphones. British Telecom, the U.K.’s largest telecom carrier, cut 10,000 jobs in 2009. Intel and Sprint of the U.S. also let go 5,000 and 4,000 employees, respectively.

KT is being outrivaled by SK Telecom and LG U+ in the mobile telecommunications business as well. The company lost nearly 1.5 million customers to its rival LG U+ that banked on “Saving Phone” over the past two years. It can be said that 500 billion won (491 million dollars) of KT`s annual sales went up in smoke. Employees who take voluntary early retirement will be paid severance pay amounting to two-year salary, or can move to a subsidiary to work for two years. If 6,000 workers leave the company, it can save 510 billion won (491 million dollars) in labor cost a year. KT’s union said in a statement, “If we can reverse the trend by a general strike, then we will go for it, but opting for struggle in lieu of burden-sharing is effectively no different from committing collective suicide.” It is a wise decision. After KT’s far-reaching restricting was publicized Tuesday, the company’s share surged on Wednesday, which reflects market expectations.

KT’s case gives many good lessons to poorly managed state-run companies that have only turned blind eyes to lavish and shoddy management. While KT is a privatized company, poorly managed state-run firms will cause the public to take the brunt of damage. If heads of those companies, who are appointed by those in power based on political favoritism, and labor unions, whose privileges are protected with life-time employment, funnel company profit to their pockets, the taxpayers will be forced to repay the debts. Labor unions and management at state-run companies should learn lessons from KT’s corporate restructuring.